China's mandarins get candid about problems ahead

Premier Li Keqiang highlighted his government’s performance in the last one year and the challenges ahead in various fields. Compared to other reports by his predecessors, Li spoke more frankly about the mounting challenges faced by the country. Srikanth Kondapalli on the two recent Chinese parliament sessions.

Unlike the sometimes cacophonic and animated parliamentary sessions in India, China’s legislative sessions are orderly, although most of the time these are predictable and decisions arrived at long before Parliament meets. Thousands of proposals are discussed in small batches of ‘people’s deputies’ and decisions taken in China.

China had just concluded two major sessions -- the law-making National People’s Congress and the advisory group China People’s Political Consultative Conference meeting from March 3 to 1. The highlights were the popularising of a new catch-phrase ‘Four Comprehensives’, basically alluding to economic development, instituting rule of law and party governance issues.

Premier Li Keqiang submitted the work report on March 5 highlighting his government’s performance in the last one year and the challenges ahead in various fields. Compared to the other work reports by his predecessors, Li spoke more frankly about the mounting challenges faced by the country. Li was also precise and crisp in rattling figures with one fourth of the report outlining the past years report card, while three-fourths of the report outlining what he intends to do this year.

Premier Li started by suggesting that 2014 was ‘complicated and challenging’ with the regional and international economic situation still attempting recovery in the aftermath of the debilitating global financial crisis in 2008. Li also stated that the country is facing ‘mounting downward economic pressure’ and that the country’s economic model still remains ‘inefficient’ and still at the ‘preliminary stage of socialism’.

Firstly, Premier Li stated that China had maintained 7.4 per cent economic growth --the largest in the world today. However, for a country which witnessed double digit growth rates in the last two decades, scaling down of the growth rates meant unemployment and social crisis that the Communist Party could hardly afford.

This ‘new normal’ growth rates -- fixed at 7 per cent for 2015 -- has been a dampener, although after the sessions, the stocks jumped to a five year high. The International Monetary Fund had scaled down its estimates to China by 6.8 per cent for 2015, further reducing this to 6.4 per cent for 2016.

One of the main factors in the downward slide in the growth rates are bad loans extended by the state-owned banks, mounting debt and flight of capital. For instance, McKinsey reports suggest that China’s overall debt increased to 282 per cent of the GDP, reaching over $28 trillion in 2014 from $7 trillion in 2007.

The local government’s debt had reached more than $1.7 trillion -- although 70 per cent of these are investments in the infrastructure projects. Also, the airport seizures in the United States of suitcase loaded cash wads or real estate investments in Canada and Australia are all traced to fleeing Chinese.

Secondly, the grain output had reached 605 million tons, a slight increase over the last decades stagnant grain output of over 500 million tons. Nevertheless, China’s agricultural sector had been suffering for several decades with falling investments, indirect taxes and growing global integration pressures after the country joint the World Trade Organisation in late 2000.

Previously, China had abolished various taxes to uplift ‘san nong’ problems (that afflicted farmers, agriculture and villages). Yet the agricultural sector is on a downhill slide, with cadres encroaching on fertile land.

Thirdly, to prepare for the ‘high liberalisation’ trade regime, China is expanding the reform efforts to make the cash-rich state owned enterprises efficient; establish free trade zones in Shanghai, Tianjin, Guangdong and Fujian provinces; and increase incentives for inward and outward FDI flows (with China receiving over $120 billion and investing over $100 billion abroad). This is to place China at the higher bargaining position in the proposed Trans-Pacific partnership era.

Fifthly, as a panacea for countering the trend of declining exports, enhancing domestic consumption and expanding sustainable growth rates, the 12th Five Year Plan icon of innovation -- the Zhongguancun IT model was expanded to other parts of the country. Premier Li cited the jet aircraft development, lunar exploration and super-computing in this regard, although some Chinese argue that since Song Dynasty, China’s track record on innovation had been dismal.

Sixthly, Premier Li cited achievements in the diplomatic sphere of hosting the CICA and APEC meetings, ‘good neighbourhood’ policy and the flag-ship programmes of the Silk Road and Asian Infrastructure Development Bank. Li stated, China had been ‘writing international rules’.

Seventhly, China kept pace with the last two decades of increasing the defence allocations by outlining $142 billion for this sector in order to continue to build ‘a solid national defence and strong armed forces’. While the actual allocations could be more than $200 billion, the current 10 per cent increase is above the national growth rates with the neighbours expressing concerns. Also, China became the third largest exporter of arms, after the US and Russia, expanding its exports by 143 per cent between 2010 and 2014, according to estimates.

Eighthly, Premier Li vowed to clean up the deteriorating environmental situation in the country in general and in Beijing in particular even as the documentary ‘Under the Dome’ took the thunder away from these two sessions -- reportedly watched by several millions in China.

Ninthly, efforts to counter corruption had been cited by the premier. Anti-corruption measures, as cited by Premier Li as fighting ‘formalism, bureaucratism, hedonism, and extravagance’ had ensured -- at least in the open -- that late night karaoke performances, bribe-giving and taking and other practices prevalent so far since the reform programme had been initiated since the late 1970s. Nevertheless, while several thousand cadres, military officials and others were investigated for ‘disciplinary violations’, political rivals were mainly targeted in this drive.

Finally, while the previous work reports a decade ago highlighted ‘mass incidents’ --citing mounting public protests across the country, this work report is silent on this issue, even though survey reports of People’s University and Qinghua University have cited growing income inequalities and pegged such protests at more than 200,000 a year.

Also, casting shadow on the ‘two sessions’ is the recent stand-off on Hong Kong, where protestors last year had demonstrated for autonomy and the right to choose their chief executive.

Srikanth Kondapalli is professor of Chinese Studies at Jawaharlal Nehru University, New Delhi